9 September 2017

Brexit or Brenaissance?

The other day an old friend of mine who regularly reads my blogs asked me why I had not blogged on Brexit. I did nor give him a very good answer - something along the lines that while I had voted to leave I did not do so thinking it would be straightforward. But if there is a point to writing these blogs it is to take complex issues and seek to understand them better and then try to explain them. Much of the success I enjoyed in my business career was in taking that approach and although I am not so much involved in business now these blogs give me the opportunity to continue that.

Firstly, I have written on the subject of the European Union on four specific occasions.

1.In 2011 I wrote about the follies of the Euro project and explained how it could not work and would only lead to “a totally undemocratic political and economic union. While the UK can stay out of this it will be badly affected as the new EU will pass a lot of terrible laws which will be binding on all member states.”[i]

2. In 2012 I wrote about the European project after a visit to the European Parliament. I explained how badly this operates but contrasted the dreadful experience of virtually all the member states in the 20th century compared with the UK. I also contrasted the long democratic tradition of the UK with the much shorter experiences of most of the member states.

I argued that there were probably three points of view in the UK: a minority who wanted to leave; a minority who wanted to stay in; and a majority who wanted to stay in a substantially reformed EU. The problem was that the EU was not capable of such reform and instead “those who are dedicated to the project, motivated by their fears of wars and other demons in their collective histories, use (each new) crisis to drive even further on the path to which they are committed: political, economic and monetary union.”[ii]

3.In 2014 I showed how the EU acted as a super state imposing institutions on its member states just as the Soviet Union used to do. This was quite unlike the UN which acted intra – state and took no sovereignty from its members. I described the then Conservative plan of renegotiating terms to put before the people at a referendum as nonsense because such new terms could not be negotiated and approved by the other 27 states in the timetable. So it proved. [iii]

4.In 2015 in the run up to the General Election I considered the question of Europe as one of the six main issues facing voters. I discussed each of the main parties’ policies on the EU showing they were all deeply flawed. I again showed how the Conservative policy of renegotiating terms and then holding a referendum in the following year was nonsense. So it proved.[iv]

Before the referendum took place I was discussing the issue with a senior member of the Conservative party, a former Cabinet Minister. I said I did not understand David Cameron’s position. I argued that he had had two choices. Either he could take the statesmanlike position that Harold Wilson took in the 1975 referendum. In a pamphlet Wilson had said “I ask you to use your vote. For it is your vote that willnow decide. The Government will accept your verdict.” The pamphlet also said “The Government willaccept your decision – whichever way it goes”. He allowed his Cabinet Ministers to speak and vote as they saw fit, and wisely kept his own views to himself. Alternatively Cameron could say, "I have tried to gain reforms from the EU as I promised. But the EU has demonstrated to me that it is incapable of such reform and indeed seems even more set on pursuing an unsustainable path of ever closer union. I therefore recommend that we leave.” Instead he had taken a third route which seemed doomed to fail. My friend said “David. You don’t understand politics. David Cameron never expected to win the General Election. The promise of a referendum would have been the first policy he would have conceded in his expected negotiations with Nick Clegg for a second Coalition Government.”

I was shocked that the Prime Minister would play such games with the Constitution. I was also shocked when as a member of the party I received endless emails purporting to come from David Cameron, George Osborne and other party leaders full of scare stories about the consequences of leaving the EU.

In February 2016, over four months before the referendum, I received a particularly feeble email from David Cameron referring to the launch of Britain’s "new deal with the EU”. It contained a short list of the meaningless results of his negotiations. I replied to the effect that he had gained nothing of substance and that he may have gained nothing at all as all member states still had to ratify even these minor changes. I pointed out that:

“As a member of the EU we have no trade agreement with the USA, China etc. We are unable to negotiate our own. Chile, a much smaller nation, has trade agreements with more countries than any other on earth. Why? Because it’s independent and enterprising.”

I concluded that “A negotiator shows the other side that he is prepared to lose if he does not get what he wants. You didn’t and so you didn’t get anything like what can be described as reform.

Prepare to write your memoirs.”

The result of the referendum was not a surprise to me. As a marketing man I do not just ask if the target customer says they will buy my product. I test how much they like it and how likely they are to buy it. So simple opinion polls that ask yes/no questions do not go deeply enough. It was clear to me that many of those saying they would vote to remain were motivated by concerns about change and fear of the unknown. Whereas many of those who said they would vote to leave were passionate about it and wanted the country to regain control of its laws, its borders and its money.

The debate before the referendum was poor on both sides. It has got worse since. The media seem to want to endlessly rerun the campaign. At least most politicians, though not all, have seemingly accepted the result. But then they continually twist and turn over what Brexit means.

It is not helped by the structure of the negotiations. To be fair to the EU these are proscribed in the Treaty of Lisbon, where the famous Article 50 presides.
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It provides: “Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements. Once a member state has notified the European Council of its intent to leave the EU, a period begins during which a leaving agreement is negotiated setting out the arrangements for the withdrawal and outlining the country’s future relationship with the Union. A withdrawal agreement would then be negotiated between the Union and that State”.

The agreement is to be approved by the European Council, acting by qualified majority, after obtaining the consent of the European Parliament. For the agreement to pass the European Council it needs to be approved by at least 72% of the continuing member states representing at least 65% of their population.

On 29 March 2017 Theresa May, the new Prime Minister, exercised Article 50 and thus initiated a period of two years in which this agreement must be concluded. The period can be extended by agreement of the Council. If it is not concluded then the UK and the EU would follow World Trade Organisation Rules on tariffs.

So the Council has selected a negotiating team and given them a mandate. It appears that they refuse to start talking about trade until there is agreement for the financial terms of withdrawal. This is bad negotiation though understandable as the UK makes the second largest net contribution to the EU budget after Germany and they want to somehow recover this money.

Clearly the UK will have some obligations which should be met and others we might wish to meet. These might fall into three categories;

1. Britain’s legal obligations e.g. paying the pensions of its Brussels officials. This is uncontroversial but such payments would not be paid up front, but as the obligations fall.

2. EU programmes with which we might want to continue involvement as other non-EU countries already do, e.g. Erasmus, the educational exchange scheme which also involves Norway and Turkey.

3. Contributions that are not legal obligations but that we might want to support as part of an ongoing partnership, e.g. upgrading infrastructure in former communist countries, possibly in exchange for preferential deals in other areas.

As no part of the agreement is agreed until it is all agreed it is perverse to delay trade talks until this so-called divorce bill is settled. It also means that the continuing uncertainty is bad for business on both sides.

When Britain leaves the EU by definition it will also leave the so-called Single Market. Actually that is not its name. It is the Internal Market and is a development beyond the original Common Market. When it was first mooted it was expected to deliver growth rates of 6.5% to 7% in the first five years of its operation. It has never achieved this in any year and has instead achieved lower growth rates than most of the rest of the world. Italy has seen no growth at all in over ten years.

It is based on the idea of free movement of goods, services, labour and capital. While free movement of goods has to a large extent been achieved it has certainly not been achieved for the rest. Ironically free movement of labour (an economic concept) is often confused with free movement of people (a social concept). This has caused massive disruption and is of itself one of the biggest reasons for dissatisfaction with the EU throughout its member countries.

But the biggest problem with the Internal Market is that in creating a single market where each country is free to trade with each other member state without tariffs or any other restrictions, to achieve such a system of standard regulation enforced within the Customs Union, its regulations apply to every business whether or not that business actually trades across the border. Only 5% of British businesses in fact trade with another EU member state accounting for 12% of GDP but the other 95% are all subject to the same burden of regulation.

Some argue that this regulation is beneficial in the improvement of standards, controlling emissions or food quality, for example. But if this is true it is also true for those countries that do not belong to the Internal Market but sell their goods into it. These goods must also conform with EU regulations and so their countries will benefit from this experience. Similarly it seems to be forgotten that EU member states must conform with US regulation when they sell their goods there, or China or any other territory.

While the share of the UK’s goods going to the EU rose sharply during the common market years, from 1973 to 1992, under the single market it has declined from about 54% to just below 44% now. Many countries outside the single market have done better at exporting to it than the UK has, even though the UK is inside it. During the existence of the single market, in a league table of the 40 fastest-growing exporters to the 11 (other) founder members of the single market, from 1993 to 2015, the UK comes in at number 36. What is more, 14 countries that traded with the EU under WTO rules, including the USA, India and Japan, increased their exports to the single market (excluding the UK) by 52%, compared with 25% for the UK.

Many still argue that we must stay in the Single Market, even while leaving the EU. This is not constitutionally possible. Only today I heard a leading TV political journalist argue that “Leaving the Single Market was not on the ballot paper.” But it was, as leaving the EU means leaving the Single Market. Politicians argue that we must have access to the Single Market. But every country in the world has access to the Single Market and most of them don’t pay for it. Their goods might be subject to tariffs but they still manage to compete and grow their business.

So it boils down to this. If Britain is ever going to shake off its current malaise and start genuinely competing on the world stage it needs to be free of the EU shackles. Inside the EU/Single Market/Customs Union we are not free to negotiate free trade deals with any other country. They can only be negotiated with approval by all member states. The recent Free Trade Deal with Canada that took seven years to conclude was still nearly scuppered by a regional parliament in Belgium, and still, despite approval by the EU Parliament, has to be approved by all the other 27 member states' parliaments which could take years.